Transcript Developments in the SA economy

Standing Committee on Finance
Sector Analysis
02 July 2014
Esther Mohube
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Structure of the presentation
Sector analysis
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Global economic developments
Developments in the SA economy
SA Policy pronouncements
What are the Implications?
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Global economic developments
Region / country
Percentage
World
Advanced economies
Emerging markets and developing
countries
Sub-Saharan Africa
South Africa
2013
2014 2015
2014
2015
Change
GDP projections: January 2014 GDP projections: April 2014
3.0
1.3
4.7
4.9
1.9
3.7
2.2
5.1
6.1
2.7
3.9
2.3
5.4
5.8
3.2
3.6
2.2
4.9
5.4
2.3
3.9
2.3
5.3
5.5
2.7
-0.1
0.0
-0.2
-0.7
-0.4
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Global economic developments (cont.)
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IMF Global economic prospects January 2014
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Economic activity improved & world trade strengthened in 2013
Economic growth, 3 % in 2013
Driven by export rebound in emerging market economies
IMF expected growth to increase from 3 % in 2013 - 3.7 % in 2014 & 3.9 % in 2015
On account of recovery in advanced economies
SSA was expected to remain the fastest growing region
SA economy to grow at 2.8 % in 2014 & 3.3 % in 2015
IMF Global economic prospects: April 2014
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Economic activity strengthened, expected to improve further in 2014 & 2015, supported
by advanced economies
World GDP is expected to grow at 3.6 % (slightly revised by 0.1 percentage points) in
2014 & 3.9 % in 2015 (unchanged)
Key drivers include reduction in fiscal tightening, except in Japan and still highly
accommodative monetary policy
SSA growth forecast to increase from 4.9 % in 2013 - 5.4 % in 2014 & 5.5 % in 2015
SA economy expected to grow at a rate of 2.3 % in 2014 (revised down) & 2.7 % in 2015
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Recent developments in the SA economy
Region / country
Percentage
2014
2015
GDP projections: Dec to Feb 2014
2014
2015
Change
GDP projections: April to June 2014 forecast
2014 2.7
2.3
-0.4
2.0
3.0
-0.7
IMF
World Bank
2.7
2.7
3.2
3.4
OECD
SARB
2.7
2.8
2.8
3.4
3.3
3.5
2.5
2.1
1.8
3.2
3.1
2.8
2.8
2.7
2.7
3.5
???
3.2
1.7
1.9
???
3.0
2.9
????
-0.2
-0.7
-1.0
-1.1
-0.8
???
2.0
3.0
-0.7
BER
Fitch
Standard & Poor's
National Treasury
Average
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Developments in the SA economy (cont.)
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NT Economic growth prospects: February 2014
– Growth rate1.9 % in 2013
– NT projected GDP of 2.7 % in 2014 & 3.2 % in 2015;
– Drivers of growth:
• New power plants & transport infrastructure;
• Stronger global recovery expected to support exports;
• Growth in sub-Saharan Africa will promote expanded trade & investment.
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Economic growth prospects: Post February 2014
– SA economy contracted by 0.6 % in first quarter of 2014 (mining & manufacturing
sectors)
– Analysts, IMF, World Bank, Rating agencies, SARB, BER reduced SA
growth rates from December/January 2014 forecasts
– The 2014 forecast revised down by 0.7 percentage points, on average
– On average, SA economy forecast to grow at 2 % in 2014 & 2.9 % in 2015;
– During the MTBPS period, NT will determine its latest forecasts
– SA growth expected to be supported by stronger external demand
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Developments in the SA economy (cont.)
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Reasons for reduced growth forecasts
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Other economic developments
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All analysts cited prolonged platinum strike activity as the main reason
Electricity supply constraints,
Deterioration of the SA growth outlook (Slow GDP growth)
Risks posed by strike action on the fiscal consolidation path
Inflation rate expected to stay outside 3-6 % target range until 2015, currently 6.1 %
April 2014
Interest rates hiked by 50 b.p. in April 2014, likely to increase by 25 b.p.
Consumer spending environment constrained
Unemployment rate stood at 25.2 % Q1 of 2014, from 24.1 % in Q3 of 2013
Strike disputes in platinum mines have since been resolved as at June 2014
What does that mean??
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Economic environment has changed, recovery had been slow, outlook may have
deteriorated
SA economy continue to growth below potential, pointing to the economy’s susceptibility
to shocks
Economy not creating sufficient jobs to absorb new entrants in the labour market
These factors may have implications for the fiscus.
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What are the implications
Fiscal Implications
– Countercyclical fiscal policy response to global economic crisis resulted in
large budget deficit
– Deficit remained persistently high as revenue & growth forecasts were
repeatedly revised downwards
– Deficit was expected to narrow from 4 % of GDP in 2013/14 to 2.8 % of
GDP in 2016/17; assuming the economic growth & revenue collection pick
up pace
– Increased cost of borrowing for businesses & government;
– Increased debt servicing costs, but net national debt expected to stabilise as
a % of GDP in 2016/17
– Fiscal space has been eroded by rising debt.
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SA policy pronouncements
NDP, Budget Review, SONA
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Government prioritised the accelerated implementation of the NDP
SONA acknowledged that the SA economy needs to grow at a faster rate, than the current
rate of 1.9 % in 2013
Measures to unlock economic growth potential include:
– Roll-out the infrastructure programme
– A wide range of job creation initiatives
– SMMEs
– Transformation of the energy sector
– Partnerships & collaboration between labour, business and the community
Fiscal policy
– In the Budget Review released in February 2014, Government remain committed to
maintain fiscal sustainability & keep its debt within manageable levels
– Fiscal consolidation path continues, the commitment to reduce the budget deficit
remain
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In Conclusion
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SA economic outlook may have deteriorated, growth expected to be modest
Mining & manufacturing production sectors likely to continue to struggle
Scope for a Q2 growth rebound limited (strikes & consumer environment)
However:
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Platinum strike has been resolved by June
Overall GDP growth likely to recover in the second half of the year
New electricity capacity could provide the positive supply side shock which could help
growth
New ways to deal with labour market issues may assist
The current fiscal stance (modelled on growth forecasts of 2.7 % in 2014) may
have to be revised.
Economic uncertainty remain a key risk to fiscal sustainability
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Thank You
THANK
YOU
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